Some Mistakes are in the Past . . . And Some Are Yet to Come
We’ve all made money mistakes. Some of us have made more than others. Hopefully you’ve learned from the mistakes that you’ve made. I certainly have learned from mine. You can read more about them here.
In most cases, experience is the best teacher. In other words, we don’t always learn the lesson until we make the mistake. But that doesn’t have to be the case. It is possible to learn by watching others, and seeing what happens to them. We can also learn by reading. Read through these money mistakes and see if you’re guilty of any of them. Come back at the end, and let me know what you think.
Mistake #1: Purchasing everyday items based on money that “will” be there.
Several years ago, this was my wife and I. Let me explain the situation. We would go into a Sam’s club or BJ’s wholesale with the intention of buying groceries that we needed. Inevitably there would be a great deal on something else that we weren’t planning on buying . . . yet.
So we did what most of you have probably done. We put that item in the cart, and put the whole purchase on a credit card. All the while we knew that we didn’t yet have the money. There was one more paycheck that month, and it would come in before the bill came, and then we would be able to cover the charges.
There are two risks with operating your budget this way.
One. Your anticipated paycheck never comes. Either you lose your job, or there is a *gasp* government shutdown. You know what I’m talking about.
And two. You’re always a little behind. Instead of paying today with yesterday’s money, you end up paying with tomorrow’s money. In some cases you start robbing from Peter to pay Paul. And before you know it, you have credit card debt. It happens. Just. Like. That. Resist the urge to make this mistake.
Mistake #2: Spending money based on your cravings/impulses.
Not only did we make the first mistake during that trip to BJ’s, we also made this mistake. We made a purchase on impulse. We weren’t planning on buying that item, and yet we did anyway.
You can read more about impulse purchases here. The short version is: The companies marketing their products to you have studied your behavior more than you have. They know what will cause you to spend money. You have to be on your guard, only spend money that you planned, on purpose, to spend.
Mistake #3: Buying big ticket items because “You deserve it”, to “Keep Up”, or Based on peer pressure.
Have you ever walked into a store with some friends intending just to “look around”, and you ended up walking out with a new outfit? You made mistake #2 and #3, and maybe even #1, depending on how you paid for it.
You were pressured in to buying that outfit for one reason or another. Maybe your friend said it looked great on you? Maybe you told yourself that you worked hard, and you deserved it. Or maybe everyone else in your posse was buying new clothes and you felt the need to “keep up” with them.
What ever the case, you spent money for the wrong reason. You didn’t plan it. And maybe you didn’t even want it. But you have it now.
You know you made this mistake when buyer’s remorse sets in a few days later when you see that outfit hanging in your closet.
Stand your ground, and only spend money on purpose when you intend to.
Mistake #4: Not Investing in Your Employer’s Retirement Plan: 401k or Otherwise
Just 41% of Americans are investing in their company’s 401k plan. That number should scare you, especially if you have a 401k available to you and you’re in that 41%.
79% of Americans have access to a 401k. Which means that a lot of people are making this money mistake. I’ve mentioned this before. But how do you plan on retiring if you don’t have any money? Is social security your plan? Will you mooch off your neighbors or family?
Investing in your 401k or other employer sponsored retirement plan is the best way to build wealth. In most cases, your employer will match a portion of your contribution, making that free money. You can’t beat that!! Don’t leave it on the table. Take advantage of the opportunities and invest in your 401k.
If you don’t have access to a 401k (like me), you should still be investing in an IRA (Individual Retirement Arrangement) or Roth IRA. You aren’t excused just because you don’t have access to a 401k. Retirement is coming for you too. Eventually you won’t be able to work, whether you like it or not.
Mistake #5: Taking a Loan or Withdraw from Your 401k
If you have a 401k or even another retirement account, don’t ever think about taking money out of it before retirement in the form of a loan. There are at least two reasons why this is a bad idea.
One. If you leave your company voluntarily or not, the balance of your loan is due. If you don’t have to money to pay it back, it becomes a withdraw. That money is then taxed as income, and you have to pay a 10% penalty for taking the money out early.
Two. While you’re playing around with that money you borrowed (from yourself), you’re losing the ability for that money to grow and compound. This usually a bad thing. Unless the market happens to tank after you take your loan out, and it goes up while you’re paying it back. But this is just a another form of timing the market, and it’s risky. No one knows what the market is going to do, and playing games with your future is foolhardy.
The main takeaway from all these money mistakes is this. Spend your money on plan, on purpose. Don’t go into a store without a plan. You can’t afford to spend frivolously.
And guard your retirement plan. Don’t borrow against it, and continue to put money into it. It really is that simple.
So, have you been guilty of any of these money mistakes? I certainly have. I’ve made almost every single one . . . except for borrowing from my 401k. Don’t worry. If you have, there’s still time to correct them. You can start today to reverse the mistakes!
What money mistakes have you made? I’m sure there are others I didn’t list here.
Why not tell me about them in the comments below. Thanks as always for sharing.